A New Bubble? Are Markets Ignoring The Crisis?

Multiple expansion is back. The S&P 500 Price to 12-month Forward Earnings multiple is back to almost pre-crisis levels.

Investors are ignoring the warning signs of companies eliminating guidance, slashing dividends and buybacks and the macro data.

Most investors are looking at 2020 as a lost year and focus on 2021 and the recovery, driven as well by massive central bank liquidity injections and rate cuts. This may be a risky strategy because:

  • The cycle was already weak prior to the Covid-19 crisis.
  • Macro estimates already show that consumption and services may take a long time to recover.
  • Many companies’ balance sheets have been severely damaged even considering a recovery.
  • The V-shaped recovery estimates assume a return of capital expenditure and household consumption that is inconsistent with the debt and unemployment situation.

About Daniel Lacalle

Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Author of bestsellers "Life In The Financial Markets" and "The Energy World Is Flat" as well as "Escape From the Central Bank Trap". Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Frequent collaborator with CNBC, Bloomberg, CNN, Hedgeye, Epoch Times, Mises Institute, BBN Times, Wall Street Journal, El Español, A3 Media and 13TV. Holds the CIIA (Certified International Investment Analyst) and masters in Economic Investigation and IESE.

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